While the retail industry bounced at 0.5%, this increase is still insignificant
The New Zealand retail sector registered a 0.5% increase in the first quarter of this year, but remains sluggish as people limit their spending due to soaring prices of goods and services, according to the new ASB Economic Note released on May 23.
The note, written by ASB senior economist Kim Mundy (pictured above) stated that the 0.5% increase in retail spending is the first for the last two years as the New Zealand economy remains sluggish. The economic note also showed that there was a 0.4% increase in core retail volumes during the first three months of 2024, which is a bit of good news.
Bad economy, worsening inflation affect people's spending
“However, annual changes in total and core retail volumes continue to decline, with 2.7% and 1.7% falls registered respectively. Considering the strong population growth over the last 12 months, per capita declines in spending were even steeper,” Mundy said.
The economic recession and the high inflation rate in the country negatively impacted the way that people spend, according to the ASB report.
“Durable spending remained very weak with a hefty 2.8% qoq decline in hardware, building & garden supplies for instance (and following a 2.2% quarterly fall in Q4 2023). Specialised food fell 2.1% qoq in Q1, following a 3.7% qoq decline in Q4 2023,” the report said.
“Annual changes in retail values also highlight that conditions were generally tough with 9 retail categories experiencing a fall in sales values. The weakest sectors continue to be durable goods, with some store types particularly weak. However, sectors aligned with the tourism sector continue to recover.”
Some categories show positive performance
Nonetheless, some of the retail categories registered a slight increase in their sales volume, namely: supermarkets and grocery stores (0.6% qoq), accommodation (4.1% qoq), food and beverages services (2.2% qoq), motor vehicles and parts (1.1% qoq), notwithstanding the fall in vehicle registrations in the past three months, and petrol (0.8% qoq).
The increase in numbers registered by supermarkets, groceries, and food and beverage services is thanks to the ongoing rebound in the tourism sector. According to the report, the increase highlights the “importance of a growing population,” as the demand for food and other supplies also increases. Meanwhile, the slight improvement in pump prices encouraged motorists to go full tank.
Tougher times ahead
Meanwhile, the ASB Economic Note warns the public of the tougher times ahead as the cost of living is expected to increase by $70 per week, although the domestic inflation is slowly cooling down.
“Looking ahead, we expect the challenging conditions for the retail sector to continue for a while yet. Cost of living pressures are expected to remain acute over 2024, given sticky (but cooling) domestically generated inflation. Our estimates suggest households could be facing up to an extra $70 per week in their living costs this year. The OCR has probably peaked, but there is still a considerable amount of additional tightening in the pipeline with a chunk of mortgage lending set to roll onto higher rates. Moreover, while net migration is still high, there are signs now that the peak in population growth is behind us,” the economic note said.
“Progress is being made in lowering inflation, and household spending is generally going backwards, but OCR cuts remain some way off. The RBNZ’s message yesterday was that until domestically generated inflation is showing clear signs that it will return to target, the RBNZ is not willing to take its foot off the brakes. We expect the RBNZ to continue to repeat this hawkish message for some time and at this stage OCR cuts look to be a 2025 story.”
